What is CS01 in risk?
The risk that arises from the “unfavorable” change in bond values (or values of credit derivatives such as credit default swaps) in response to changes in underlying credit spreads.
What is the difference between DV01 and CS01?
DV01 being the risk of the risk-free/benchmark rate moving 1bp, and CS01 being the risk of the credit spread over the benchmark rate moving by 1bp.
How do you calculate CS01?
CS01 can be calculated by bumping the credit spread curve of the reference entity. This is calculated by pricing the CDS using its quoted spread then bumping the quoted spread by 1bps and recalculating the price; the difference is the (parallel) CS01. This number is reported by Markit, Bloomberg etc.
What is CS01 credit?
A common measure of the risk of a CDS is its “credit spread ’01” or CS01, which is defined as the change in the value of 100 notional amount of a CDS if the CDS spread falls by one basis point.
What are spread curves?
Spread curves are curves that represent the differences between two yield curves. The system calculates a spread curve from two yield curves (A and B) as follows: Yield curve A is generated.
What is value at risk in finance?
Value at risk (VaR) is a statistic that quantifies the extent of possible financial losses within a firm, portfolio, or position over a specific time frame. Risk managers use VaR to measure and control the level of risk exposure.
What is DV01 and PV01?
PV01, also known as the basis point value (BPV), specifies how much the price of an instrument changes if the interest rate changes by 1 basis point (0.01%). DV01 is the dollar value of one basis point change in the instrument.
What does it mean when bond spreads tighten?
Bond spreads tighten with improving economic conditions and widen with deteriorating economic conditions. The difference (or spread) between the interest paid on near risk-free Treasuries and the interest paid on these bonds then increases (or widens).
What does it mean when credit spreads tighten?
Credit spreads widen (increase) during market sell-offs, and spreads tighten (decrease) during market rallies. Tighter spreads mean investors expect lower default and downgrade risk, but corporate bonds offer less additional yield.